So here we have it, controversial billionaire Donald Trump is now almost certain to be the Republican candidate in the race for the American presidency. That's incredible for someone who has never held elected office and who throughout the primary race, the pundits and Republican establishment had repeatedly assumed would eventually burn out.
Politically this will pit the Republican's least popular candidate on record against Hilary Clinton who also happens to be the least popular candidate the Democrats have fielded, for the job of leader of the free world. While most polls currently point to a clear lead for Clinton, on the economy it is the businessman Trump who takes the lead with his campaign promise to "Make America Great Again".
At a time when investors see risk lurking everywhere from the state of the Chinese economy to a potential British exit from the EU, what should UK investors make of the race for the US presidency?
In the UK it's mainly Trump's controversial views on immigration and aggressive style that have gained the spotlight. However Trump's views on the economy also represent a radical departure from conventional thinking and diverge deeply from the Republican party's historic support for free markets. Trump is at heart a protectionist who wants to impose trade tariffs, renegotiate NAFTA and who has lined up with the blue collar workers of "Main Street" against Wall Street. In this respect Trump, despite his personal wealth, is tapping into a deep well of anger over widening inequality as wage growth has lagged far behind asset growth. This is down to the twin forces of globalisation putting pressure on costs and jobs with Quantitive Easing supercharging the wealth of those who own assets. These same concerns are fuelling anti-establishment movements across the globe.
There are clearly aspects of Trump's economic agenda which if enacted pose a real danger, in particular the potential to spark trade wars through the aggressive imposition of tariffs. Other aspects of his agenda, such as sweeping tax cuts, in isolation look very pro-growth.
Of course much of this could prove campaign bluster, and it is also important to understand that the US system of government is very different to our own. Should Trump make the presidency he will be constrained in enacting legislation by Congress which is loaded with the very establishment politicians he had railed against during the primaries, and who have successfully clipped President Obama's wings.
Importantly the US has long had a powerful, independent Central bank in the US Federal Reserve (Fed) which by default is the leading provider of liquidity to the global financial system. Perceptions of where it is heading with US monetary policy drive the direction of the dollar, the world's leading reserve currency, which has a knock on impact to the cost of capital across the globe. In the grand scheme of things what the Fed does is likely to be a bigger influence on global capital markets than what economic policies a future US President might seek to enact.
In this respect there is no need for UK investors to wait for the outcome of the US presidential elections. The strengthening of the dollar last year in expectation of the first US rate hike in nearly a decade has hurt US competitiveness, US corporate profits are slipping and the once buoyant US shale oil industry is rapidly contracting as the Saudi strategy of driving it out of business succeeds. US retail sales remain subdued.
In our view US shares are expensive at a time when the growth outlook is weak and the Fed has got itself into a no-win situation, where the markets don't believe the Fed's forecasts for rate hikes but where a shift to a more hawkish stance could prove very bad news for equities. So, our view is that investors should be underweight US equities irrespective of whether Hilary or The Donald make it to the White House.
This article was previously published on Tilney prior to the launch of Evelyn Partners.